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Domestic growth, currency to propel revenues; margins ticking up sequentially - Pharmaceuticals Q2FY23 Preview

ICICIdirect Research 11 Oct 2022 DISCLAIMER

What’s buzzing?

 

Pharmaceuticals are likely to witness a decent quarter amid strong YoY growth in domestic formulations and stable US portfolio amid favourable currency movement and some key launches. Price hikes in domestic business are expected to lead to sequential margin growth. 

Context

 

Growth in domestic formulations is likely to be induced by a rise in chronic and sub-chronic therapies. Cost pressure eased out in this quarter as freight cost and other lingering costs cooled off. Several new launches and ANDA approvals are expected to lead to decent topline growth. 

Our Perspective

 

During Q2, domestic formulations (select pack) are expected to post robust growth of 12.2% YoY to Rs 13,513 crore on the back of 1) uptick in volumes of chronic and sub-chronic therapies, 2) full quarter impact of price hikes and 3) benefits from new introductions and field force expansion. On the US front, single digit price erosion persisting in the oral solids base business is expected to be offset by 1) new launches, 2) continued momentum in specialty/complex portfolio and 3) ~7.5% YoY impetus from rupee vs. US$ movement in the last quarter. The universe (13 coverage companies) is expected to post YoY growth of ~12% to ~Rs 49,648 crore. Europe (select pack) is expected to remain muted YoY at Rs 2,817 crore as we expect a continuance of a delay in demand pick-up amid distributors and tenders’ challenges. API segment (select pack) is expected to grow ~11% YoY to Rs 4,913 crore as we expect an improvement in demand pick-up in the generics space after prolonged inventory de-stocking and delay in order amid volatility in prices. On the companies’ front, Biocon, Laurus labs and Sun Pharma are likely to see 15%+ YoY growth.

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